Trade Balance Improves But Vulnerable to Crude Oil Movements

FSDH
Research observes an improvement in Nigeria’s trade balance (the difference
between total merchandise exports and imports) in Q2 2018 over the preceding
quarters. This is a good development for the Nigerian economy and the financial
market as it means more foreign exchange came into the country than left
through trade. The impact of this should be positive on foreign exchange rate
stability. However, we remain concerned that crude oil exports dominate trade
at 83%; any adverse development in the oil market, either in production or
price, could have severe consequences on exports and exchange rate.

The
total merchandise trade dropped in value in Q2 over the value recorded in Q1
2018 but higher than the level recorded in the corresponding period of 2017.
The drop in imports was the major driver of the drop in total trade. FSDH
Research also noticed a drop in total exports in Q2 2018 compared with the
figure in Q1 2018. The drop in imports may be linked to the growing use of
locally produced goods instead of imported good in some instances.

FSDH
Research believe a lot more goods that could be produced locally than the
current levels if the business environment improves. Consumption of locally
produced good would increase if they compete favourably in price and quality
with imported alternatives. This would create more jobs in Nigeria, conserve
foreign exchange, deliver more tax revenue for government to lower the
country’s debt burden and create wealth for the country.

All
these are possible if the basic facilities that can aid low cost of production
are available. On the export side, Nigeria can export locally produced goods,
particularly in the non-oil sector, to increase the supply of foreign exchange
and reduce the dependence on crude oil. Appropriate measures to reduce the
length of time and costs of export at the Nigerian seaports would boost export
of goods in Nigeria.

FSDH
Research considers that Nigeria needs to negotiate better with other trading
partners than we currently have, so that both parties may benefit from the
trading relationship. Some of the countries Nigeria imports goods from should
be able to buy Nigerian goods in order to develop a mutually beneficial trading
relationship.